The Truth About Tax & Spend Conservatism Pt 1

March 30, 2011

Terrance Heath

Last week, I wrote of strange fiscal shenanigans in the reddest of the red states; like tax increases in Mississippi and increased government spending in Texas. "So," I asked, "why are Texas and Mississippi having serious budget problems? And why are their governors breaking promises about taxes and spending?" There are two answers to that question; one simple answer, and one that delves deep into the mysteries of tax and spend conservatism.

Taxes, Truth & Consequences

Texas

So, why are Texas and Mississippi having serious budget problems? And why are their governors breaking promises about taxes and spending? Because the prevailing conservative economic policy in those states hasn’t worked.

The deficit came to light because of a routine borrowing exercise. Every year, the state borrows money to make up for a cash-flow gap created every autumn, when its bills arrive faster than its revenue. The state normally pays the loan back in the spring and summer, when revenues catch up. But this year, there’s a dull-but-important fact hidden in that cash flow estimate: State leaders looked a year ago and determined that the "deep hole" — when the cash-flow demand peaks — would be $7.8 billion. Now, Combs has told the debt markets that the deep hole is actually $10.8 billion, or about $3 billion worse.

Revenues didn’t catch up. Revenue forecasts, it turns out were down because "under-performing sales and franchise taxes." The former might be blamed on the economy, as fewer people are working and those who are still working are spending less. But the latter may be a direct result of another Texas tax cut. The state recently change the form of its franchise tax for one that’s only raising half the revenue anticipate.

Mr. Barbour has taken an ax to his state’s budget more than five times since September 2009. No agency has been spared, with education, mental health and other areas cut by almost 10% from what was originally budgeted for the 2010 fiscal year that ended June 30. He proposed another 8% to 10% cut for some agencies in 2011, and belt-tightening in 2012 is expected to continue.

At the same time Mr. Barbour has been cutting spending, he has been buoyed by access to more than $2.6 billion in funds from the controversial federal stimulus, which forestalled deeper cuts, and by two tax increases he signed into law. Those will be scrutinized closely by tax-averse GOP primary voters should he run for the party’s presidential nomination.

What’s more revealing, however, is which tax and whose taxes he actually refused to cut. Mississippi is one of two states that currently tax groceries. That is, Mississippi is one of two states that "continue to apply their sales tax fully to food purchased for home consumption without providing any offsetting relief for low- and moderate-income families." (The other is its neighbor Alabama.) In Mississippi, that’s a 7% sales tax.

But while Barbour’s found some tax increases he does like, he also found one tax cut he doesn’t like — a proposed cut in Mississippi’s tax on groceries. In 2007, Barbour — a former tobacco lobbyist — claimed "sticking to guns" on his campaign promise, "I’m not gonna raise anybody’s taxes," when he opposed a bill that would increase the cigarette tax by $1 while cutting the food tax in half.

The governor’s aides and allies say Mr. Barbour is simply sticking to his no-new-taxes promise. “The governor ran four years ago on, ‘I’m not going to raise anybody’s taxes,’ and he hasn’t,” Mr. Robertson said.

But others, including health officials, say the dichotomy is false. The governor’s no-tax pledge, they insist, is at odds with the public good, since most studies show that increasing the cost of cigarettes sharply diminishes the number of smokers.

“We have the worst health indices in almost every category of any state in the country,” said Dr. J. Edward Hill, the immediate past president of the American Medical Association and a physician in Tupelo. “Reducing the percentage of citizens who smoke and increasing funding from cigarettes would have tremendous advantages.”

Dr. Hill said the issue had become entangled in political ideology. “It’s political so-called principle — ‘I’m never going to raise taxes on anything’ — which is actually also relatively stupid,” Dr. Hill said.

About Terrance Heath

Terrance Heath is the Online Producer at Campaign for America's Future. He has consulted on blogging and social media consultant for a number of organizations and agencies. He is a prominent activist on LGBT and HIV/AIDS issues.